Before I continue, let me explain briefly what does it mean by 5/95 plan. Normally when you purchase a property, you need to pay at least 10% of downpayment in order to “buy”. Then after a certain period of time, you will start paying the bank for the housing loan and the interest charges. The problem here is that, you will need to ensure you have the enough fund to pay the 10% and also the progressive payments after that. The bank will penalize you if you’re not able to pay them back on time.

And 10% is not a small amount during times like this. A 300k property means you have to fork out 30k before you can start talking.

So some developers think of another way to attract more buyers during recession period and came out with the 5/95 plan. You pay 5% as downpayment, and nothing else UNTIL your property is completed. For a landed property, it normally takes 24 months and for highrise like condominiums, it’ll take 36 months but everything will be stated in your S & P. So, this does sound like a good deal right? You only pay 5%, which is as low as 15k for a 300k property, and then nothing else until the property is completed. This also means that if you don’t have money now, you can still buy a property. You don’t need to pay until 2 or 3 years later!

If it’s so good, why do I dislike it so much? I’m never a big fan of the 5/95 plan actually and this is due to 2 simple reasons.

• More expensive – if you calculate properly, the total price of the property is more expensive using the 5/95 plan due to the hidden charges and accumulated interest rates. I did not do a proper calculation and the examples I’ve seen before this are rough figures. I’ve read it somewhere in the papers actually. Do correct me if I’m wrong. But yeah, if you compare 5/95 plan to the old progressive payment plan, 5/95 will make you pay more for the same property.
• Speculation – in 5/95 plan, you don’t need to pay anything between your 5% downpayment and your property completion date, which is maybe 2 years or 3 years later. So if you are saying you opt for 5/95 because you don’t have the money to pay now (due to recession), then what makes you think you will have a stable income or enough money to pay for an even bigger amount 3 years down the road? You are actually speculating things here. What if the economy gets worse 3 years later? In my opinion, if you really want to buy a house, you need to be able to afford it NOW and in the future. So progressive payment vs 5/95 are still the same. If you can’t afford paying the progressive payments now, don’t assume you can afford it 3 years later.

That’s all. These 2 reasons are enough to make me stay away from 5/95 plan. I’m sure there are still a lot of other affordable housing plans out there and different people will have different opinions. But for me, I would prefer to go the traditional progressive payment way.

Feel free to comment or even correct me if you find my information here is not correct.